Second attempt to find funding for Ukraine: can the EU unlock frozen Russian assets?
The discussion of the reparations loan for Ukraine in recent months has increasingly resembled talk of building a bridge over an abyss: everyone sees the need, everyone recognises the importance, but no one can find a structure that will not collapse at the first blow of political winds.
The European Commission has long been balancing an ambitious plan to use the frozen reserves of the Russian Central Bank for this purpose with the fears of member states regarding the legal consequences.
The search for a compromise has narrowed down to technical issues, namely: can the European Central Bank (ECB) be a party to the transaction? Will Belgium allow the depository Euroclear to purchase EU debt instruments using Russian assets? And will this not violate property rights and international obligations?
The concept has changed
The old model, which has already faded into the background, was based on the idea that frozen Russian assets should become a source of liquidity.
The EU planned to issue special bonds, which Euroclear would have to purchase, using the cash balances in its accounts after the immobilisation of Russian reserves and the liquidation of investment assets.
It was a skillfully assembled financial structure: the European Commission essentially proposed exchanging idle assets for a working mechanism to help Ukraine, with future reparations acting as a natural way to return the funds.
But such a scheme could work under at least three conditions.
To launch it, at least the tacit consent of the European Central Bank, the political determination of Belgium, and the willingness of Euroclear to take on the active role of an investor were required.
When the ECB officially declared that it was not ready to cover any risks and would not participate in any transaction involving Russian assets, and Belgium made it clear that the legal consequences of such a scheme were unacceptable, this construction lost its practical meaning.
Meanwhile, Euroclear was unwilling to become a financial investor, rather than just a depository.
In other words, this model failed not because it was flawed, but because it relied on the participation of parties who were not willing to implement it.
Against this background, a new proposal emerged, much simpler in terms of technical ambitions but politically more stable.
Under this proposal, the EU abandoned the idea of turning Russia’s frozen assets into a source of cash. Instead, funding for Ukraine will come from the market, through the traditional mechanism of issuing European bonds, similar to the NextGenerationEU program.
The European Union approaches investors, sells them debt instruments, and receives funds, without requiring the participation of the ECB or the intervention of Euroclear.
Russian assets do not disappear; they become political and legal collateral.
They are neither transferred, converted, nor sold. They simply remain where they are, and their immobilisation serves as a guarantee that when Russia is eventually subject to international reparations obligations, these assets will be used to repay the loan.
The entire logic of the instrument is deferred to the future, but without any harm to Ukraine, which is receiving the necessary funding now.
Chances of success are increasing, risks remain
In this new mechanism, financial guarantees from member states, distributed in proportion to their GDP, play a key role.
Germany, which is estimated to cover more than a quarter of this "insurance policy," provides political and financial weight to the entire structure. In fact, its participation makes this mechanism not only a financial but also a strategic decision for the EU.
In return, Belgium receives the necessary insurance against the risks associated with the storage of Russian assets, thus removing its own veto, which had previously blocked any progress.
An important aspect that radically changes the political logic of the process is that
unanimity among EU countries is no longer required to adopt this model.
The European Commission has proposed a model that can be adopted by the EU Council through a qualified majority. This is not just a technical detail, but a fundamental change that allows the EU to bypass dependence on Hungary and any other states that have traditionally used the veto as a geopolitical tool and have resisted further financial support for Ukraine.
It is also possible that countries not formally part of the EU, such as Norway, will join the structure.
The active promotion of this model in Brussels suggests that it has a much higher chance of being supported at the upcoming European Council summit on 18-19 December. Although no final decision has been made yet, the mood within the Union has shifted in recent weeks.
The structure, in its new form, has become clearer, more manageable, and does not require extraordinary decisions from each government.
The specified mechanism is already receiving a positive response within the EU, which has not been the case in the public sphere in recent months.
In a letter dated 8 December, 2025, the leaders of seven EU countries – Estonia, Finland, Ireland, Latvia, Lithuania, Poland and Sweden – called on the European Union to urgently implement the EU’s proposal for a "reparation loan" in favour of Ukraine, drawing funds from frozen Russian assets.
They emphasised that supporting Ukraine is not only a moral obligation but also a strategic interest for Europe, and urged that no time be wasted in providing Kyiv with funding in the near future.
However, risks still remain.
The most significant of these is related to the old regulation on the immobilisation of frozen assets.
Their status still requires unanimity among all member states, and this is where the Hungarian factor comes into play.
The second area of uncertainty is the position of the United States. There have already been suggestions in the media that Washington may weaken support for the "reparations loan" through friendly European governments, creating additional opportunities for geopolitical influence for itself.
Some documents on the so-called peace settlement clauses that have been leaked to the press indeed mention attempts to redistribute some of the frozen funds in its own way, and this factor cannot be excluded from the analysis.
At the same time, one of the important advantages for the European Union is that it seeks to integrate this mechanism into its own defence policy.
If these funds are to be used to purchase weapons for Ukraine, Brussels wants them to comply with European standards, regulations, and control mechanisms. In other words, this loan could become a platform for strengthening the EU's role in defence procurement and turning assistance to Ukraine into part of a broader European defence ecosystem.
Even the market is reacting to the new architecture of the solution: after several weeks of decline, shares of Rheinmetall, one of the key companies in the European defence industry, have risen by more than 7% in the past week.
While this cannot be interpreted as direct evidence, the market is often the first to sense political shifts that have not yet been formalised in legal documents. Investors appear to have started to prepare for a scenario in which the EU adopts a new model for financing Ukraine's defence needs.
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Thus, the new mechanism moves away from a precarious dependence on individual states and institutions, becoming an instrument in which the members of the European Union take responsibility.
It is based on the market, not on financial creativity, and uses Russian assets not as a direct source of liquidity, but as legal collateral today and a lever of political influence in the future.
The previous model was bolder but too risky. The new one is less legally sophisticated, but much more stable.
For the first time, it makes the reparations loan not just an idea, but a realistic solution.
And this is what both Ukraine and the European Union need most right now.
Serhiy Verlanov,
Member of the Board of the Dnistrianskyi Center,
Head of the State Tax Service (2019-2020)
This material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA / Compensation for War Damages to Ukraine. Phase V: Interim Reparations for Victims of Russian Aggression against Ukraine – Exploring Approaches, Needs and Solutions."